Overview
Payment and performance bonds back a contractor's promise on a specific project. The performance bond guarantees the project owner that the work will be finished to the contract terms. The payment bond guarantees that subcontractors, laborers, and material suppliers get paid. On public work the two are usually required together, under the federal Miller Act and the state and local Little Miller Act statutes.
Because these bonds are project-specific, underwriting looks at the contractor's financial strength, work in progress, and track record on jobs of similar size and complexity. A contractor with steady financials and completed projects of comparable scope clears underwriting faster and at a lower rate.
When the surety pays a covered claim, it pursues the contractor for reimbursement under the indemnity agreement. The bond protects the owner and the project's supply chain, not the contractor.
Who needs this bond
General contractors and subcontractors bidding on public works projects, federal Miller Act jobs, and most private commercial work over a threshold set by the obligee.
Typical amount and term
Bond amount typically equals 100 percent of the contract value. Premium runs 1 to 3 percent of bond amount for well-qualified contractors. Term matches the contract duration.
What this bond costs
Your premium is a small percentage of the bond amount, set by underwriting. The biggest drivers:
- The contract amount, since the bond penal sum usually matches the contract value
- The owners' personal and business credit
- Working capital, bonding capacity, and the quality of the financial statements
- Experience completing projects of similar size and scope
- Whether the request is a single bond or part of an ongoing bonding program
| Scenario | Bond amount | Estimated premium |
|---|---|---|
| Established contractor, strong financials | $250,000 contract | around 1 to 2 percent of the contract value |
| Newer contractor, limited history | $100,000 contract | around 2 to 3 percent of the contract value |
| Large public project, audited statements | $1,000,000 contract | often under 1.5 percent on a tiered rate |
Figures are illustrative premium ranges, not quotes or statutory amounts. Your rate depends on the bond amount your obligee requires and your underwriting profile.
What you will need
- Completed surety questionnaire and last 3 years of CPA-prepared financials
- Personal financial statements for owners with 10 percent or greater interest
- Work in progress schedule and bank line of credit confirmation
- Reference letters from suppliers, subcontractors, and prior obligees
How to apply
- Request a quote with project size, scope, and obligee details
- Send underwriting package (financials, WIP, references)
- Receive bid bond or consent of surety within 24 to 48 hours
- Bond issued at award; final payment and performance bonds filed with the obligee
How a surety bond differs from insurance
A surety bond is not insurance. Insurance protects you, the policyholder, against your own losses. A surety bond protects a third party (the project owner, and the subcontractors and suppliers) against your default, and you stay responsible for repaying the surety for any valid claim it covers. That is why underwriting weighs your finances rather than only pricing a risk transfer.
Frequently asked questions
Do I need both a payment bond and a performance bond?
On most public construction work the two are required together: the performance bond protects the owner if the job is not completed, and the payment bond protects subcontractors and suppliers. Private owners may require one, both, or neither.
How much does a payment and performance bond cost?
Premium is a percentage of the contract amount, commonly in the low single digits for well-qualified contractors, and it moves with credit, financial strength, and project size. The figures on this page are illustrative, not a quote.
How long does it take to get bonded?
A single project bond for a qualified contractor can often be issued within one to two business days once the financials and contract details are in hand. First-time or larger requests can take longer.
What happens if a claim is filed?
The surety investigates, pays valid claims up to the bond's penal sum, and then seeks reimbursement from the contractor under the indemnity agreement.
Is the bond a one-time cost?
Project bonds are tied to a specific contract and term. Contractors who bond regularly set up an ongoing program so each new project can be bonded quickly.
More contract bonds
Reviewed by the Cornerstone Surety bond team. Last reviewed 2026-06-17.